Fundamental Trade Analysis

The only question left to answer at this point is perhaps the most complex. While it is difficult for us to name one as we could never update this page quickly enough, there is a very simple process for picking an item to merchant. Again, we will be sticking with herblore for demonstrative purposes.
When we clicked on the herblore page, this is the entire 'herb cleaning' chart that was available:

(You may click on the graphic to enlarge it for a better view).

To start, we will focus our attention on the '1 XP Profit' column. Even though we are only considering this data point, a number of important things immediately jump out.

There are wide variations in the profit per experience point for each herblore. Remember when we said that in a perfect market these would all be the same? This is clearly not the case; cleaning some herbs yields a tremendous profit (14 GP per experience point), while others lose a similar amount (6 GP lost per experience point profit). You know right off the bat that there is GP to be made here and you are on the right track.

The next decision that you must make is a question of whether you are risk averse or not. For the risk averse, throw out the items that yield a negative profit. For those with more of a stomach for merchanting, items with negative profit can be interesting investment opportunities. Generally the price will correct to bring it back into positive territory, though this cannot be guaranteed. As we aim to set you off in a positive direction, we will omit the negative profit herbs (Tarromin, Harralander, Grimy Spirit Weed, and Fellstalk) from consideration.

And now we begin the analysis by bringing our factors into the equation. As a refresher, these factors are: Rarity, Usability, Supply, Demand, Price, Leverage, Volatility, and Patience. Generally speaking this analysis can be done with just a glance, but in order to be thorough we will go line by line down the list of remaining herbs to explain why or why not they may be a good item choice (or not). Until you are more experienced it may be helpful to go down the list factor by factor instead of trying to do them all at once; however we will do the most apparent ones first as any factor is a disqualification. In other words, failing one is enough for us to not consider the item. After that failure, how many others it fails could be irrelevant unless you wish to be ahead of the curve and plan your next move (for example: what price might be reasonable for an item that is not currently reasonable):

Guam - This item's market price presents a massive leverage problem. Unless we're just starting out and without many Runescape coins, buy limits would make it almost impossible to turn a handsome profit.

Marrentill - See Guam.

Ranarr - This item has potential. Many players are able to use it (usability) to produce potions that are in constant demand. On top of that, the supply side is ideal as the herb isn't entirely rare and can be produced with a moderately reasonable farming level. This remains a contender as we move on.

Toadflax - Demand problem. This herb is only used in two potions (Saradomin Brew and Agility Potion) both of which, while useful, aren't among the most in-demand potions in Runescape.

Irit - Leverage problem.

Wergali - Demand problem.

Avantoe - Our second item contender. Although if we were to choose Avantoe would be second to Ranarr as fishing potions are pretty much useless, but it is still used in hunter's potion (demand problem).

Torstol - Demand problem, only used for Zamorak Brew, not a highly sought after potion. Also, as with dwarf weed, a supply problem - very rare item drop and a high level of farming is required to grow the herb, both of which factor into the extremely high price tag.

As you can see, a brief analysis yielded clear winners and losers. This type of analysis of analysis should be performed on a regular basis in order to reflect updating market conditions. Our two contenders are: Ranarr and Avantoe. Here are the particular item graphs for each:

Ranarr:

Avantoe:

In this case, we chose to go with Ranarr as it seemed sounder. We then preceded to merchant the items using our price discovery methods, which helped us to determine where the item was trading. We then placed staggered buy orders in the evening and sell orders in the morning (which corresponds to off-peak and peak gameplay hours). Merchanting Ranarr proved to be incredibly lucrative. Three days later this is how the item table looked:

(You may click on the graphic to enlarge it for a better view).

A few things changed radically over this timeframe, revealing volatility in the certain items especially Torstol (remember the supply/demand problem?). Volatility is a place for momentum trades, not the type we're interested in here. Indeed, Ranarr proved to be generally consistent in terms of pricing, allowing us to produce consistent, nearly effortless profit in approximately 20 minutes of game play per day.

Note: It is important to remember that the reason that we stuck with one item in this instance is so that we could get a better feel for how the item traded over time. Each day we recorded our 1 XP Profit number. Were able to predict how the item would trade within the range that this item bounced between. Odd prices signal that it's time to go on vacation for a bit and sit the market out.

Again five days later (9 days after the initial recording), things were still consistent, our analysis turned out to be spot on (Torstol had corrected again, imagine that).